When Worlds Collide

The study below originally appeared at Treasure
Chests for the benefit of subscribers on Friday, April 7th, 2006.

Stocks are not cheap by any measure, but as you can see in the
attached, they likely still have a ways to go in relation to inflation
adjusted extremes, meaning both inflation and
rising prices should be with us for sometime yet. This realization should
become evident in viewing Figures 1 and 2 in the attached above. At the same
time however, and an understanding embedded in lessons offered when measuring
relative asset valuations against
gold during inflationary times, if one's portfolio is not properly structured
during circumstances like these, a slow grinding ascent in the stock market
will not mean you are keeping pace with future purchasing
power requirements. This understanding is reinforced in reviewing Figures
3 and 5 of the
attached, where although stocks are rising, inflation and overall price
levels are rising faster, a condition not likely to end
soon. This of course means an accelerating loss of relative wealth (purchasing
power), with absolute losses to follow assuming deteriorating
fundamentals and the appropriate
circumstances --- collide ---
at some point.

What can we expect in the future given lessons from history in this regard?
Making the assumption this is a Grand
Super Cycle top, where in the end, a complete collapse of modern day stock
markets would not be out of the question, while stocks are rising, commodities
and precious metals will undoubtedly continue to out-perform.
Furthermore, based on previous modern day bubble examples, some of the attached
comparative plots suggest a degree of caution should be excised as early
as this summer however (Figures 1, 2, & 3), while others, which perhaps
involve a better comparison since both populations primarily reside in the
States, suggest if history is a good guide, stocks (equities) should remain
firm until early 2008. (See Figures 4, 5, & 6 attached directly above.)
Of course there are other studies which were covered earlier this year (see Figure
2) that suggest pressure should remain in the pipe until early 2009, or
perhaps slightly beyond, as long as sympathetic free radical elements associated
with quantum mechanics particular
to this universe are still roaming. (i.e. a logarithm is generated.)

Supporting this view, a historical review of how US stocks have reacted to
bouts of real rates climbing out of accommodative
circumstances sheds some light on what we should expect in the future,
but only when analyzed in the proper context. What context do we mean? Why
-- the Greenspan context of course, where the Maestro was never shy about ensuring
liquidity was plentiful when problems
arose, especially ones big enough to potentially leave a lasting blemish
on his record. And in viewing Figure 1 of the
attached, which was the first instance of real rates jumping into tightening
mode above zero on his watch, you can see he was taught a memorable
lesson about what such circumstances can do to the stock market in 1987,
especially if asset prices are in bubble mode. In this respect he never forgot
this lesson throughout his tenure, where the popping of the tech bubble in
2000 was more a mistake than planned, but even there, he made sure to show
us all who was boss before he departed. That is to say undoubtedly kinder characterizations
of his legacy would never paint such a picture, but Mr. Greenspan showed us
all he has the heaviest fingers of any central banker in history, an accomplishment
earned in his willingness to allow them to sit on the printing
press buttons without fatigue.

Taking this analysis back further in time, past the Greenspan experience,
and thereby furnishing a better understanding of the messages found in the
attached, Figure 6 provides a composite of the various outcomes from 17
real rate tightenings throughout the years, including Paul Volcker's watch,
and encompassing the entirety of the post 'gold window era.' Here, as you can
see, the maturation of the current fiat
currency system has produced a loss of volatility in stocks, where accordingly our
current condition is what should be expected given the aged nature of the
causal backdrop (fiat world), one of a dull buoyancy in the broad equity complex
characterized by rotating
/ spotty bubbles as process unfolds. In this respect it should be recognized
that price managers are now at the top of their respective games, but that
this condition cannot
last forever. Moreover, in viewing Figure
7, we can see that once again real rates are threatening to push considerably
higher into tightening mode, where like that which was presented to Greenspan
in his first few months in office, Mr. Bernanke may be facing an unexpected
test in the not too distant future. That is to say the feel good party associated
with the new job may be over soon if the signals gold is throwing
off have any merit, and where the term 'no
free lunch' should be remembered by all.

How long can this go on? Well, I would take a very good look at Figure 6 in the
attached for an answer to this question. Notice the similarity between
the post-bubble patterns in the Dow of the 30's compared to the NASDAQ of
today, and that if history repeats, a lasting top in the broad measures of
stocks should be expected sometime in the first quarter of 2008. One thing
is for sure, if stocks rally unabated for another two years, once they roll
over, it will take a miracle to get them back into rally mode again, so one
better make his or her money while still possible. Of course precious metals
will likely still rise for a few years after stocks top out, but it should
not be forgotten the Grand Super Cycle chart for gold (see Figure
2) also demonstrates a lasting top will be coming here at some point
as well.

Until this point arrives however, it appears both gold and silver are
destined to reach far higher prices in coming years as growing numbers become
increasingly disenchanted with the inflationary policies of the New
World Order. Further to this, many are now rushing into an overheated precious
metal market for various reasons that could prove ill considered in hindsight
if one's objectives are speculative in nature, or rooted in reaction. Past
this however, where gold and silver's intrinsic
value as grounded currencies coexist
within both old and new paradigms
concurrently, for those who are equally well grounded in reason and aware of future
challenges, swapping today's fiat currency for precious metals continues
to make a great deal of sense to the broad minded.

In leaving you now, we invite you to visit our
site and discover more about how an enlightened approach to market analysis
and investing could potentially aid you in protecting your finances into
the future. And of course if you have any questions or criticisms regarding
the above, please feel free to drop
us a line. We very much enjoy hearing from you on these matters.

Note: Special thanks to Jesse's
Roadhouse Café for all of the wonderful images comprising many
of the buttons one can view above.

Treasure Chests is a market timing service specializing
in value-based position trading in the precious metals and equity markets with
an orientation geared to identifying intermediate-term swing trading opportunities.
Specific opportunities are identified utilizing a combination of fundamental,
technical, and inter-market analysis. This style of investing has proven very
successful for wealthy and sophisticated investors, as it reduces risk and
enhances returns when the methodology is applied effectively. Those interested
in discovering more about how the strategies described above can enhance your
wealth should visit our web site at Treasure
Chests.

Disclaimer: The above is a matter of opinion and
is not intended as investment advice. Information and analysis above are derived
from sources and utilizing methods believed reliable, but we cannot accept
responsibility for any trading losses you may incur as a result of this analysis.
Comments within the text should not be construed as specific recommendations
to buy or sell securities. Individuals should consult with their broker and
personal financial advisors before engaging in any trading activities. We are
not registered brokers or advisors. Certain statements included herein may
constitute "forward-looking statements" with the meaning of certain securities
legislative measures. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results, performance
or achievements of the above mentioned companies, and / or industry results,
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Do your own due diligence.

Unless otherwise indicated, all materials on these pages
are copyrighted by treasurechests.info Inc. No part of these pages, either
text or image may be used for any purpose other than personal use. Therefore,
reproduction, modification, storage in a retrieval system or retransmission,
in any form or by any means, electronic, mechanical or otherwise, for reasons
other than personal use, is strictly prohibited without prior written permission.